2014 (3) TMI 855 - HC - Income Tax

Disallowance of interest u/s 14A of the Act Held that - Revenue contended that the principal amounts were initially used for the purpose of business, without further proof of the use in the relevant previous year, interest could not have been allowed as a business expense - CIT(A) and the Tribunal was of the view that for the previous years as well as for the years when the funds were borrowed, there was no adverse finding against the assessee necessitating its adding back thus, as such no substantial question of law arises for adjudication as the issue is already remitted back to the AO for reconsideration Decided against Revenue.

Summary

Issues:
1. Disallowance of interest of Rs.18,71,586
2. Disallowance under Section 14A

Analysis:

Issue 1: Disallowance of interest of Rs.18,71,586
The High Court addressed the appeal by the Revenue against the ITAT's order directing the cancellation of the disallowance of interest amounting to Rs.18,71,586. The Revenue contended that the interest deduction claimed by the assessee for borrowed funds in A.Y. 2004-05 was not justified as there was no proof of the funds' use in the relevant previous year for business purposes. However, both the CIT (Appeals) and the Tribunal had found no adverse findings against the assessee regarding the use of funds, leading to the allowance of interest as a business expense. The High Court concurred with the lower authorities' findings, stating that no substantial question of law arose in this regard.

Issue 2: Disallowance under Section 14A
The High Court also considered the disallowance under Section 14A, which the Revenue claimed was wrongly dealt with by the ITAT. The issue was referred back to the Assessing Officer for reconsideration in light of a specific decision. The Court held that interference was not warranted at that stage and that no substantial question of law arose concerning this matter. Consequently, the appeal (ITA 105/2014) was dismissed by the High Court.

In conclusion, the High Court upheld the lower authorities' decisions regarding the disallowance of interest and Section 14A, finding no grounds for interference or substantial questions of law.